TAM, SAM and SOM: a practical guide for early-stage founders

Early-stage founders often face a familiar frustration: they know investors want “a big market”, but what does that mean in practical terms? At the same time, founders are navigating a funding landscape where early-stage deal volumes have fallen, investor attention has concentrated, and diligence expectations have risen.

Market sizing is one of the simplest ways to show discipline, and that you know what you’re expected to know, but also one of the easiest aspects of a business plan to get wrong. Inflated TAMs and vague opportunity statements weaken credibility, and even though it can be tempting to try to portray a bigger market, it’s often counter-intuitive.

Market sizing is the most common area of guidance and feedback that we give to startups adding their pitch to ThatRound. This guide breaks down TAM, SAM and SOM in and offers a practical route to calculating them — helping founders sharpen their pitch, improve investor conversations and make better decisions about where to focus.

What TAM, SAM and SOM actually mean

Total addressable market (TAM)

TAM is the total demand for a product or service if a company captured 100% of the market. Think of it as the “theoretical maximum”. For example, “the total annual spend on cybersecurity solutions in the UK”. It’s useful context, but usually too broad to operate from.

Serviceable available market (SAM)

SAM is the portion of the TAM a startup can realistically serve today, given geography, regulation, sector focus or technical readiness. For example, a founder building a cyber tool for SMEs in the UK would exclude enterprise customers, non-UK buyers and unregulated verticals to define their SAM more precisely.

Serviceable obtainable market (SOM)

SOM is the realistic market share a company can capture over the next one to two years based on its actual go-to-market strategy, pricing, sales capacity and product maturity. SOM is execution-driven — not a share of TAM, but a slice of SAM that can be won next.

Knowing the definitions matters because UK investors increasingly expect grounded assumptions. With capital concentrating into fewer, larger rounds, particularly in AI and deep tech, founders need to demonstrate they understand their market's boundaries and dynamics.

Why market sizing matters to investors

It sharpens fundraising conversations

Market sizing is one of the quickest ways for an investor to judge whether a startup can support venture-scale returns. In the current environment — where first-time fundraisings have fallen and follow-on rounds outnumber new raises — founders need to show growth potential that is credible.

A clear TAM–SAM–SOM structure helps:

• Position the business within a real segment
• Justify pricing and customer focus
• Explain short-term growth expectations
• Address competition without overstating the threat

It improves internal clarity

Market sizing forces you to be selective, especially if  operating in fast-moving sectors. Having to consider what you can realistically achieve, guides product prioritisation, sales strategy and budget allocation. It narrows focus by showing who can be served now, versus who belongs in a later expansion wave when you’re better resourced.

How to calculate TAM, SAM and SOM

1. Use top-down methods for broad context

A top-down TAM starts with a market-size figure from a reputable industry report. For example:

• “Total annual UK spend on renewable energy storage”
• “Global market size for oncology diagnostics”

You should then narrow it by geography, buyer type or sector. The challenge is avoiding oversized TAMs based on irrelevant adjacent markets. Investors will test category definitions, so accuracy matters more than size.

2. Use bottom-up methods to build credibility

The bottom-up method is an alternative way to define TAM. It’s often preferred because it reflects real customer behaviour and pricing specific to your business.

Formula:

Number of potential customers × annual revenue per customer

Note: this way still requires a reliable third party data source to define the number of potential customers. Examples by sector:

• Healthcare: Number of NHS Trusts × expected £ sales per trust
• Manufacturing: Number of UK factories matching your specification × tooling or subscription cost
• Cybersecurity: Number of SMEs in target vertical × per-seat pricing

This method shows investors how the business scales in practice and helps founders avoid over-relying on broad industry reports.

3. Narrow to SAM using realistic filters

SAM should reflect the customers your product could serve today. Filters might include:

• Regulatory constraints (e.g., NHS approval pathways)
• Geographic focus (e.g. UK-only for the next 18 months)
• Technical readiness (e.g. climate-tech needing integration partners)
• Sector specificity (e.g. AI for precision manufacturing, not all industrial AI)

This segmentation is essential — UK investors are placing more scrutiny on early-stage feasibility as capital becomes more selective. Justify your target customers with evidence rather than aspiration.

4. Define SOM using execution-driven assumptions

SOM represents what your startup can capture in 12–24 months. To calculate SOM, you should consider:

• Sales capacity (how many deals a team of one or two can close)
• Conversion rates (from pilots, letters of intent, beta users or early pipeline data)
• Sales cycle length (especially important for health, energy and enterprise AI)
• Channel partners and distribution strategy
• Product maturity and deployment readiness

SOM is not a percentage of TAM — it is a forecast grounded in operational constraints. This demonstrates discipline, which investors consistently reward.

Why accurate market sizing improves fundraising outcomes

It strengthens investor trust

Good investor–founder relationships start with openness and clarity. A disciplined market model shows the founder’s ability to think strategically and build transparently — qualities your prospective investors will hopefully consider strong indicators of execution ability.

It improves investor targeting

UK funding remains fragmented across angel networks, syndicates and funds. Clear market sizing shows where you should focus your time, and it does the same for your fundraising strategy. When your SAM and SOM align with an investor’s thesis (in the cases where it’s discoverable), you can prioritise those applications and reduce time wasted on poorly matched outreach. Comparing how different fundraising services interpret market size can also help guide which routes to prioritise before launching a round.

It supports valuation and round design

Investors are cautious on pricing across stages, with valuations normalising and growth-stage rounds under pressure. Grounded market sizing makes valuation discussions more constructive because both sides share a clearer view of near-term potential that any future multiplier is likely to be based on.

It enhances strategic planning

A realistic SOM becomes the blueprint for the next 12–24 months work, shaping hiring, sales priorities and product milestones.

The practical takeaway for your pitch deck

Market sizing is more than a slide in a pitch deck. It’s a way for founders to demonstrate commercial understanding grounded in operational reality, which in turn inspires  investor confidence. By breaking the market into TAM, SAM and SOM and anchoring everything in evidence, you can improve your fundraising readiness and strengthen your conversations with investors and partners.

If you’re raising, now or in the future, map your market early, apply realistic filters and use a bottom-up method to support your pitch.

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